Saturday, March 7, 2009

Thinking Globally, Acting Locally: Part III

Previously, Parts I & II of this discussion have addressed the role of the City in helping create and sustain its own economic fortunes, and the mixed economics associated with development in the UGA areas.
This Part III deals with a real life scenario of a potentially large in-fill development that is being strongly resisted by nearby residents.

Harry Truman once said he preferred one-armed economists because they weren't so inclined to say 'on the one hand this, but on the other hand that'.
And so it is with other people who develop strong preferences without necessarily considering all the pros and cons of an issue.

Such seems to be the case with a group of citizens who want the area known as 'Chuckanut Ridge' acquired and retained at significant public expense as yet another south-side park.

A few years ago, the group which calls itself 'Responsible Development' hired a consultant to 'prove' their case, that the CR development would cost the City about $12 million if it were allowed to proceed.
This, the consultant dutifully tried to do, but unfortunately he did not use all of the facts that should have been used regarding the City's impact fee structure.
I know this was the case because I supplied this information to the consultant well before his report was prepared -at least so I thought!

The reason a 'cost' of $12 million was important to the RD folks was that they thought an outright buy-out of the property in question might cost less than that amount, thereby resulting in a 'bargain' for the City.

The problem was that the property was valued at a significantly higher sum, and there was no funding source available from the City at the time.
Also, there was the little matter of there being no willing seller!
But these points are incidental to what follows.

As we know, this CR debate continues even as the issuance of developer's Draft Environmental Impact Statement nears.
And, as we also know the RD opponents are certainly not above waging their own version of economic warfare to achieve their goals.
But, that's OK because it's not only a part of citizen's rights, but legal.
My main problem with that tactic is that it simply ignores the other side of the economic balance sheet.

So, that is the focus of this piece; the economics that benefit the City.
I don't pretend to be an expert at accounting or to have any inside information that is not available to those with a passing interest, so please forgive any sins of omission or commission I may have made, because these are certainly not intended.

CNN Anchor Campbell Brown has the right idea with the concept of 'no bias, no bull'.
I'll try to follow those principles.

First, the cost of the 85 acres in question has been variably report at upwards of $16 million.
The property was originally about 100 acres, zoned for 1478 dwelling units, back in the early 1980's, a time apparently typified by dim record keeping.

A few years ago, about 15 of the original 100 acres was transferred as wetland buffers, now maintained by the City.
After an unsuccessful attempt or two at development by the former owner, the property was sold to the current owners, a local developer and a local bank.

Also, at some point, a voluntary down-zone was effected which reduced the number of theoretical dwelling units by half, to 739 total.
Whether or not the intent is to build that many homes isn't known, but for the sake of argument, let's say 739 is the number.
If one divides 739 by 85, the resulting density is about 8.7 homes per acre, a very respectable urban density, especially for Bellingham, especaally at a time when land supply is scarce and costs relatively high.

At such a density it makes little sense to expect that each home will occupy the exact square footage of ground, particularly buildable ground, because probably half of the property consists of wetlands and disconnected parcels that effectively render them unbuildable.

This means the likelihood of multi-story housing is pretty high, much higher than some might prefer.
That is regrettable, but it is quite legal and likely to become a reality.
Such is the way our society is intended to work, with the greater community interest usually prevailing.

If anywhere near 739 homes are ever built, this would most certainly happen over several years time, say maybe 10.
And if these homes were in fact constructed -at say, a cost of $200 k each- that would amount to a total local investment approaching $150 million, a not insignificant sum!

Just think about the ramifications of that kind of investment circulating in our local economy in terms of wages as well as goods and services from local businesses.
It's not the same as a big, faceless multi-national corporation coming to town, but it's close, and in some respects it may be better.

After all, the developer is a long time resident of Bellingham with a good reputation, who hires locally and buys locally.
Think those concepts don't fit in with sustainability?
And, the bank is also an established local business which provides local employment as well as financial services to many in our town and area.
Hey, isn't retaining and growing local businesses part of our stated goals as a community?

Tell me again, how much does this actually 'cost' the City?
I think that amount is far less than the $12 million 'guesstimated' by RD's consultant.
And, if it does turn out to 'cost' the City that much, the City will likely receive -over time- much more than that.
So, let's talk about about what revenues accrue to the City, shall we?

Think about that for a minute.
Surely, no serious person believes there aren't some tangible advantages to the City for such an in-fill to occur!
And, if not here at CR, where would these homes be located?
The County has not shown any interest in granting the City additional Urban Growth Area, have they?
[Ironically, a new UGA with a 'clean zoning slate' might be the best opportunity for the City to actually get the density it wants and needs to meet its GMA goals.]

Here are some concepts for readers to consider:

1. Sales taxes -now in decline along with the economy- @8% times $200k per home times 73.9 homes per year equals about $1.2 million per year - for 10 years.
Hey, that's about $12 million in total over 10 years, isn't it?
[Note: these revenues are shared]

2. B&O taxes - these are not paid unless business is conducted.
Wonks can figure this positive impact out if they care, but it will be a significant positive number - probably in the hundreds of thousands.

3. All infrastructure and internal improvements to the development are 100% paid by the developer.
This includes streets, sidewalks, curbs, gutters, lights and the like, all required to meet City standards.

4. Part of the external improvements needed to support transportation needs, like arterial widening, turning improvements, signals, crossings and the like would be paid by the developer, as part of Transportation Impact Fees [TIF].
Typically, just over half these City costs are covered by TIFs. I
Of course, improvements to State highways and bridges are the responsibility of the State of Washington.

5. A portion of the costs for owning and maintaining the City's Parks & Trails system is recovered via Parks Impact Fees [PIF]
Typically, this is apportioned on the basis of dwelling units, which for a single family house would amount to over $4000.
739 homes times $4000 equals almost $3 million, potentially.

6. A portion of the costs for maintaing the Bellingham School District's capital facilities is recovered via School Impact Fees [SIF]
Typically, a single family house would pay just over $1000, totaling about $750 k to the BSD.

7. ALL of the costs for extending the City's water & sewer systems is recovered through System Development Charges and Connection fees, at developer's cost -which of course is passed along to the eventual homeowner.
This amounts to 100% of these costs, a fact that RDs consultant conveniently missed.
This is a very big number, which also benefits every existing homeowner because it spreads the burden of ownership over a broader base, without substantially increasing operating costs.

8. Surface & stormwater facilities are 100% paid by the developer, using City standards,and as approved by the City.
This is typically not an inconsequential cost, although it varies widely by site.
It also may be easier to design for a larger site like CR.

9. And, lest we forget, there is the matter of Property Taxes, which are now being paid by the owners at a rate commensurate with undeveloped property.
As development occurs and value is added, these taxes also rises in proportion to value.
If we assume the average value of each newly built home is about $300 k, then approximately $2000 property taxes each would due the City each year, after it was sold.
Thus, at full build out, about 739 homes times $2000 equals almost $1.5 million per year -every year- would accrue to the City.
This is certainly not an inconsequential amount!
[Note: these revenues are shared; over half goes to schools and higher education, 25% to the City, 14% to the County, 6% to the Port]

10. As homes are sold and resold Real Estate Excise Taxes [REET] are generated which accrue to the City to be used for capital projects as approved by the City Council. Two one-quarter percent taxes apply and are collected which typically total well over $1 million citywide each year.

11. Finally, the City will likely receive over 40 acres of the CR site as the result of wetlands determinations, there by adding -at no capital cost- important buffers to the development, as well as more open space.
No one should question the intrinsic value of such a dedication to the City, and to the environment.

12. A placeholder:
Those interested and/or so inclined can advise me what they think I've left out, or what ought to be estimated differently. I will review these comments and will make adjustments, where appropriate.

Even if only half the potential 739 dwelling units on this property ever get built, that would amount to a very significant new source of revenue for the City.
And, to the extent my guesstimated figures are off, I'm sure that they are directionally correct.
This is despite my drafting of this piece comes entirely from memory that only some direct experience in such matters can produce.

So, I invite readers to comment if they will, but more importantly, to examine the ASSET side of the ledger and not just the negatives that have been so loudly trumpeted.
Who knows, when exposed to both sides of this debate, maybe some folks may be persuaded this development isn't such a bad idea after all.

Time will tell what happens at CR, just as time will have to tell what it's added value will have on City revenues.
But, to deny a potentially very large additional revenue stream to the City, is to deny reality itself!

There comes a time that we need to actually walk our talk about effective growth management.
Denial is not just a river in Egypt....